Hello, everyone! The last few weeks have been crazy busy here at the office. I have had several phone calls scheduled every day with potential clients. We have also been working tirelessly to get another business up and running, real estate consulting. And we have purchased another 5 properties ,which takes a lot of logistical fortitude. The theme of this past week was “seal the deal.”
One question that I seem to get asked on nearly every call I take — that I often just brush past with a short answer — seems to be prevalent among those just getting started. The question is: Why did you get into real estate and become an investor? Although my response is something I now regret, I have found that many, not all, have the same mindset, and it’s all wrong.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
My Start in Real Estate
When I started in real estate as an investor, I had done really well with some stock trades, I was reading a lot about finance and thought to myself, “Wow, this is simple. Anyone can do this with a loan.” I was right. I was also in the motivational mindset that being an investor brought me a higher status in life, and I really enjoyed playing the part. I was young. I had purchased several properties and found it was a great tool to assist in picking up chicks at the club.
Enter young, handsome and well-dressed me. Enter a great looking young lady and the topic that starts the conversation is, “So what do you do?” Why, I am a real estate investor! BOOM! I am now sad to say that it worked well — but none of it was really mine.
The bank owned the investment, and in some cases, I was not collecting enough on properties to service the debt so other properties picked up the slack. At that time the investment model in Australia was not based in sustainability or in cash flow, but instead in the appreciation game. Everyone was waiting for the market to go up, to get higher. It was unfortunate that I didn’t really know what I was doing.
I bought in all the wrong areas, taking advice from people who were intentionally manipulating me to do the wrong thing. They made a lot of cash on me while my entire multi-million dollar portfolio was teetering on complete financial ruin. I had no goal set. I was just in it because it seemed good, and I wanted to build wealth in the worst way. The girls were a bonus!
Learning From Experience
I now get asked that question and think about all of the things I would have done differently. I had several properties in Australia and purchased several more in the US and had nothing to show for it but huge debt. Oh, I also had taxes. Huge tax bills that were also eating me alive. That type of investing was just not sustainable unless you had large amounts of cash to throw at it while you were waiting to sell out for a potential capital gain profit.
Today, several years later and a few hundred deals under my belt, all of my Australian portfolio has been sold off, thankfully. I focus on investing for cash flow without loans or hard money. Cash is my king, and cash flow is my queen. I stress the importance of educating yourself on the market and finding honest, trustworthy people on the ground to assist you. I also stress the importance of the end goal. The five year plan is critical to building a solid portfolio.
What to Ask Yourself BEFORE You Invest
You as an investor need to be picky, picky about the property you buy, the people you work with, and you need to know what you need as a return on that investment to support your end goal. Ask yourself these questions:
- What do you want to accomplish by investing in real estate? (Supplemental income, early retirement?)
- Do you have cash reserves, or will your investments be financed?
- How large of a portfolio can you see yourself having?
- What is your desired level of return?
- Do you have an exit plan in the event you need to sell out?
- Do you have a relationship with honest and trustworthy people for assistance?
- How can this investment allow you to live better, to accomplish your dreams and goals?
Some of these questions may not apply to you if you’re already building a portfolio or if you’re a seasoned real estate veteran. In my experience, if I would have answered these questions when I was getting started, I would have done things differently. Admittedly, I was young, dumb and just wanted to be an “investor.” I now know that there is a lot more to real estate, and it’s truly about building a long term lifestyle. Even more so, it’s about setting up your goals to support your dreams far into the future and not just for short term gratification.
I have made mistakes along my path and have learned so much about myself and what my goals mean to me.
Why do you invest in real estate? What mistakes have you made along the way?
Please reach out if you have any questions. I’m here to help.